Below, Alexander Green reminds readers that no one can consistently and accurately time the market.
So rather than sitting on the sidelines and waiting for a bottom, take advantage of this down market today. A good place to start is with Alex’s four breakout “buy now” stocks.
– Nicole Labra, Senior Managing Editor
At FreedomFest in Las Vegas this month, I participated in several debates and panels.
Many were streamed live on Fox Nation.
I’ll be sharing some of those experiences with you over the next few columns.
My first debate was against Mike Turner, the founder of Turner Capital Investments in Austin.
The debate was titled “Does Market Timing Work?” Turner agreed to argue the affirmative.
I enjoy debates and see them as opportunities to have friendly disagreements and a forthright exchange of views.
That’s how this one started. But then it turned weird.
And it got weirder still in an online email exchange afterward.
I’ll explain more in my next column. But let me start at the beginning…
Market timing is the attempt to be in the market when it’s going up and out of the market when it’s going down.
It seems like a sensible strategy at first blush.
After all, you’d enjoy all those great gains when the market is generating them.
And you’d avoid the intense pain when the market is doling out that instead.
Look back and it’s easy to see when you should have been in the market – and when you should have been out.
Wouldn’t it be great if there were a system that allowed you to beat the market not by picking the best-performing stocks – like Warren Buffett, Peter Lynch, John Templeton and others – but by being in for the major moves up and out for the major moves down?
Turner claimed to have just such a system. According to him, all it takes is “trend trading.”
Here’s what he means…
You identify whether the primary trend in the market is bullish, bearish or “in transition” (i.e., has no clear trend).
If the market is bullish, you own stocks. If the market is bearish, you short stocks with an “inverse ETF.”
And if the market is in transition, you go to cash.
“All you need to do is sell somewhere near the top. And I’m going to show you exactly how to do that,” Turner promised, adding that “you don’t have to guess about it.”
Wow. You can profit from the upside, profit from the downside and sit safely in cash when the market is in between.
That’s an extraordinary claim.
But Turner provided no evidence that he could reliably do any such thing.
He offered only “charts generated from our proprietary computer-simulated trades.”
Got that? Not real trades. Just pretend trades.
How about the results from his client accounts? (After all, you could blank out the names and numbers and just show the percentage returns.)
Nope. That wasn’t offered.
How about an audited long-term track record? After all, he’s in the money management business.
No, he didn’t have that either. Although he claimed to have “doubled Warren Buffett’s return.”
(No time period was given. Perhaps he was referring to last Monday?)
To unsophisticated investors, Turner’s system sounds like it might work.
But it won’t. Not for long, anyway.
Anyone can go long stocks when the market is going up and short stocks when the market is going down.
The problem is that the market can reverse course not just in a matter of days or weeks… but in a matter of hours.
Inevitably, you end up in the market while it’s going down and out of the market while it’s going up… and underperforming the index.
You’re just begging to get whipsawed by the market.
Not a problem, Turner insists. You just wait “until the market moves up 6, 7 or 8%” before getting back in.
This sounds a little imprecise for a “trend trading” system. But there are still two problems here.
The first is that you can – and will – easily get whipsawed.
(After all, a 6, 7 or 8% rally is no guarantee that the market will head even higher.)
And second, you’re guaranteed to miss a big part of the market’s upward move.
For example, the S&P 500 has generated about a 10% average annual return over the last century.
If you wait for stocks to move up 6% to 8% before you buy, you will have missed 60% to 80% of the annual upside.
Talk about putting yourself in a hole.
I explained to the audience that Turner’s system wouldn’t work, but that he shouldn’t take it personally.
Anyone can make a good call from time to time. But no one can consistently and accurately time the market.
No mutual fund. No hedge fund. No one.
And in my next column I’ll explain why.